Defining a new CEO agenda

By Tom Craren

As we emerge from the recent economic downturn, CEOs across sectors
and around the world are seeing brighter days ahead and are making
strategic changes to capture long-term growth. As shown by the results
of our 14th Annual Global CEO Survey,¹ about half of all CEOs are
confident about revenue growth going forward. But how will they
achieve it? According to our survey, eight strategic priorities have
risen to the fore, suggesting that they are rethinking—reimagining, if
you will—paths to growth. To help you determine your own growth
imperatives, author Tom Craren recasts the numbers into questions
that every CEO should consider when setting a new strategic agenda.
He also looks at those industries that are most affected by each.

CEO confidence has made a comeback.
Despite the trying times of the economic
downturn, CEOs have a renewed sense
of optimism about their companies’
growth prospects. But what growth means
has changed in this new era of recovery.

With developing economies emerging
as hotspots for opportunity, many businesses
are refocusing their growth efforts
to include markets away from home. To
succeed in these markets in a post-crisis
world, business leaders are redesigning
their growth agendas around a new set
of strategic priorities including investing
in innovation, acquiring critical skills by
bringing new talent on board, and entering
collaborative relationships with governments,
consumers, and other stakeholders.

In making these strategic changes, CEOs
are priming their organizations for growth.
As part of that process, the following eight
questions on emerging markets, innovation,
talent, risk, sustainability, operations,
regulation, and governance can help businesses
chart a course for success.

1How do we enter new,
ever-changing markets with
confidence?

Across sectors, CEOs agree that tapping
emerging markets is a key to capturing
growth. While the International Monetary
Fund forecasts overall global growth for
2011 at 4.2 percent, developed countries—
which make up 52 percent of the
world’s economy—are growing at only half
that pace. In contrast, emerging markets
are booming, with forecasters predicting
that China, India, and Indonesia will grow
more than 6 percent.² And that surge in
growth is expected to continue, regardless
of location.

Driven in large part by changing dynamics between developed and
emerging economies, a majority of CEOs say they are performing
strategy makeovers and making more disciplined, targeted investments
in unfamiliar places.

Fear of the unknown is often a barrier for
many organizations considering a move to
emerging markets. Consumer goods companies,
in particular, are confronting this
challenge, as our research revealed. Heavily
tied to changes in consumer behavior,
employment rates, and purchasing power, consumer goods CEOs especially see the
growth potential in developing markets.
Fifty-seven percent of these executives
anticipate having to make strategic changes
to capitalize on the increasing prosperity of
consumers in emerging markets.

Driven in large part by changing dynamics
between developed and emerging economies,
a majority of CEOs say they are
performing strategy makeovers and making
more disciplined, targeted investments
in unfamiliar places. Striking the right
balance between these diverse worlds is a
key challenge that requires effective overseas
strategies. They are focusing on two
areas to help ensure success: performing
due diligence of market demographics
and collaborating with local partners.

For example, Unilever’s leaders stress the
importance of knowing where consumer
trends are headed in order to stay in front
of those trends. Given that the company
expects 70 percent of its business to come
from Asia within 10 years, they recognize
that their culture and business model must
evolve to reflect the changing demographics
of their customers and the tremendous
implications of this significant shift. Part
of Unilever’s marketing strategy is to support
a sustainability agenda that may be
pertinent to developing countries, where,
in many cases, people face food shortages,
environmental problems, and issues stemming
from overpopulation. For example,
the company is aiming to make its brand
of water purifiers available to 500 million
homes so that families not only will have
access to safe drinking water, but also will
be able to utilize other Unilever products,
such as chicken stock cubes.

Consumer goods organizations are also
embracing critical tactics such as ensuring
they have sufficient access to raw materials,
evolving their people strategy to encourage
key employees to move abroad, and
embedding families in emerging markets to
better understand local buying and eating
patterns. Moreover, they are working closely
with retailers to learn how consumers
behave at the point-of-sale and merging
with local companies to produce consumer
goods specialized for local markets.

As a result of these strategies, 93 percent
of consumer goods CEOs surveyed expect to generate higher revenues over the next
12 months, with just as many anticipating
increased revenues over three years—
increases that can be driven by expansion
into developing countries, particularly
China. (See Figure 1.) Sixty-nine percent
believe emerging-market businesses will
drive company growth, compared with
59 percent of CEOs across all sectors.

Survey results also show that the consumer
goods sector is not alone in
understanding the growth potential of
emerging markets. Other industries that
placed a higher importance on emerging
markets over developed ones include the
automotive, banking, chemicals, investment
management, oil and gas, metals,
and technology sectors.

2How do we remake our
organization into a continually
innovating one?

CEOs across all sectors overwhelmingly
agree on innovation’s importance: Almost
80 percent believe that their innovations
will lead to new revenue opportunities,
will drive efficiencies, and will create
competitive advantage. Many are implementing
changes at all levels of their
operations to make innovation a viable
growth strategy. And it is not just about
creating the next revolutionary product.
Innovation is being applied to every part
of the business—from marketing to production
to distribution and finance.

The bottom line of incremental innovations
is to get closer to customers.
Understanding how to engage today’s
consumers could mean addressing cultural
and organizational factors or rethinking
what technology can do and for whom.

More than any other sector, the chemicals
industry is investing heavily in innovation
to garner a competitive edge. Ninety-two
percent of CEOs in this industry believe
that innovation will lead to operational
efficiencies and competitive advantage,
13 percent more than all CEOs surveyed.

Chemicals CEOs are putting customers at
the center of innovation. For instance,
they know the importance that environmentally
friendly products and services
play in helping customers reduce their
carbon footprints. The industry recently
adopted Life Cycle Analysis (LCA)—
an approach that looks at the emissions
generated during the complete life cycle
of a product—to help document the
impact its products have on the carbon
footprint of customers. This “greening” of
innovation strategies is found across all
industries; 64 percent of all CEOs agree
with this change.

CEOs in this industry are also moving
development processes closer to the customer.
Forty-two percent, compared with
29 percent of all CEOs, plan to move the
development of their innovation to other
than home markets. Companies looking to
be successful in global markets may need to
localize processes to benefit new customers.

In some cases, an organization may not
have sufficient capital and the right talent
to innovate on its own. Fortunately, going
it alone isn’t the only option. Many companies
are collaborating with partners or
targeting innovation efforts at their supply
chains. (See Figure 2.) Chemelot, one
of the largest chemicals industry parks
in Europe, offers a clear example of this
collaborative approach. The establishment combines research and production facilities
in one location, where 70 companies
share the facilities and have access to raw
materials and peripheral services. But
true collaboration lies in the method of
communication between these companies—
they use Twitter and Facebook to
stay connected.

Whether through market research, localization,
or partnerships, business leaders
in many sectors understand that focusing
on business process innovation while
tuning in to the needs of customers may
offer the best opportunities to capture
growth. Our survey indicates that
besides chemical companies, automotive,
consumer goods, insurance, investment
management, pharmaceuticals and life
sciences, and technology organizations are
also turning to innovation for significant
new revenue opportunities.

3How do we identify,
engage, and empower the talent
that will distinguish our business
from the competition?

Companies are starting to hire again. With
confidence in economies on the upswing
around the world, more than half of all
CEOs surveyed say they expect their talent
pool to grow over the next 12 months. But
even with a surplus of eager candidates
ready to rejoin the workforce, finding and
keeping talent will be difficult: Two-thirds
of CEOs believe there is a shortage of
candidates with the right skills. Additionally,
with considerable opportunities in
emerging markets, finding appropriate
skills to bridge both foreign cultures and
demographics with those at home is critical
to success overseas.

Chief among organizations coping with
this issue are automotive companies, which
collectively identify closing the global
skills gap as a top priority. (See Figure 3.)
Hit deeply during the economic crisis, the
industry had to reduce headcounts considerably,
more so than other sectors. But
currently, the industry is on the rebound,
and its core concern is emerging markets.

Sixty-five percent of automotive CEOs
believe emerging market consumers will
drive growth for their companies, and, as
a result, will be adjusting their strategies
over the next three years. Eighty percent of automotive CEOs are changing their talent
strategies to deploy staff overseas, more
than their counterparts in other industries.

With confidence in economies on the upswing around the world,
more than half of all CEOs surveyed say they expect their talent
pool to grow over the next 12 months.

As a first step in securing global talent
and maintaining corporate and operational
practices overseas, companies often
establish international assignments to train
local talent and help support business
relationships with domestic companies.
However, many companies are moving
beyond this strategy. Some, like auto components
and parts supplier BorgWarner,
are nurturing local talent and are focusing
on localization—manufacturing their products
in the countries where their customers
produce vehicles. The company grooms
and retains local managers to run these
manufacturing bases and then to supply
the company with strong local talent.

In China, one of the fastest growing
countries in the world, a competitive
compensation environment makes it particularly
difficult to retain employees. But
investing in the country was a priority for
BorgWarner. The company has more people
employed in China now than during its
company-wide peak employment of 2008.

Maintaining the right workforce may often
mean considering non-traditional sources of
talent or coming up with new ways to motivate
staff. This might include identifying
new talent pools, or finding new ways to
incentivize workers. Collaborating with
governments and the educational system
is increasingly important as well. Sixty-four
percent of automotive CEOs are seeking to
improve local workforce skills this way.

While the automotive industry ranks high
with regard to talent concerns, survey
results show that finding the right
people is a top priority across the board.
Industries that ranked highest in planning
to change their strategies for managing
talent over the next year include
banking, entertainment and media,
insurance, investment management,
and transportation and logistics.

4How do we reinvent
our operations to take change in
stride while remaining disciplined
about costs?

Keeping costs down is a priority for CEOs.
But instead of slashing budgets, companies
are collaborating with external partners
to reshape their futures. Whether through
strategic alliances, joint ventures, crossborder
mergers and acquisitions, or
outsourced business functions, companies
across many industries are finding out that
partnerships can be fruitful. Operational
structure changes like these are on the
horizon for companies in the engineering
and construction, entertainment and
media, industrial manufacturing, insurance,
investment management, pharmaceutical
and life sciences, retail, and transportation
industries, according to our survey.

In the entertainment and media industry,
business leaders have embraced collaboration
out of necessity. Outdated industry
models can’t meet the challenges of rapid
change in customer demand and behavior,
technology, and industry dynamics. Those
entertainment and media companies that
embrace scale, diversification, agility, and
restructuring are more likely to survive
and prosper. Eighty-seven percent of those
surveyed expect some degree of organizational
change.

More than in any other industry, entertainment
and media CEOs are likely to seek
out external partnerships. (See Figure 4.)

As entertainment and media consumers
trend younger and more tech-savvy, entertainment
and media companies will have
to provide content through new devices.
Partnering with outside organizations can
help in that regard. This is echoed throughout
the industry, where 78 percent of
entertainment and media CEOs are looking
to suppliers for product innovation.

While cost cutting can be viewed as a
short-term survival option, controlling
costs through collaborative partnerships
can better equip companies to face
challenges that lie ahead and to manage
costs over the long term.

5How do we become
more resilient to new and
unpredictable risks?

CEOs are gearing up to make changes
across their businesses. Some of the
changes are designed to help them counter
unfamiliar risks. For example, as they cross
borders to seek out new opportunities,
they will face new tax regimes, laws, management
styles, and other local challenges.

Almost 80 percent of all CEOs surveyed
say they plan to change their approach to
risk management in the year ahead. And
a majority of these CEOs are also looking
to more formally incorporate risk mitigation
into strategic planning. For example,
72 percent of CEOs plan to allocate more
senior management attention to risk
management, and 40 percent are looking
to incorporate more crisis-readiness drills.
(See Figure 5.)

But in the aftermath of the economic
crisis, C-suite leadership has taken a more
comprehensive approach to risk, even so
far as to include addressing global risks in
their management strategies. (See Figure
6.) For example, utilities company E.ON AG
is trying to lessen its dependence on banks
by looking for longer-term capital. In the
chemicals industry, nearly 75 percent of
CEOs surveyed will be looking to support
government activity that is environmentally
sustainable. And it’s no wonder why these
CEOs want to work with governments on
green initiatives—the chemicals industry’s
top global risks include scarcity of natural
resources and climate change.

This shift to including new and unpredictable
risks—such as political instability,
scarcity of natural resources, and currency
volatility—marks a new era of risk resilience.
Including these new risks enables
organizations to remain flexible during
downturns while still finding opportunity
in a fast-changing world.

6How do we see beyond
constraints to spot the opportunities
in the new regulations?

The specter of over-regulation is a major
concern for business leaders around the
world. Today’s changing regulatory environment
brings with it uncertainties as to how
companies will do business in the future.
Survey results show that the following
industries view over-regulation as a top
concern: financial services, pharmaceuticals
and life sciences, oil and gas, and utilities.

In the aftermath of the financial crisis, the
financial services industries have become
among the most regulated. The US Dodd-
Frank Act, European Union Alternative
Investment Fund Managers Directive
(AIFMD), and the US Foreign Account Tax
Compliance Act (FATCA) are just a few
of the regulatory challenges facing asset
managers. Equally as important, national
and regional differences and potential conflicts
may negatively impact many financial
services firms’ ability to manage increased
regulation. In addition, regulatory changes
could also lead to a more conservative risk
appetite among institutional investors,
which could challenge asset management
CEOs as they attempt to achieve a balance
between maximizing return and minimizing
risk. It’s no surprise then that 77 percent of
investment and asset management CEOs
say they are deeply concerned about overregulation,
compared with just 58 percent
of all survey participants. (See Figure 7.)

Nevertheless, growth-seeking CEOs are not
sitting still, waiting for these uncertainties
to be resolved. In the US—where regulatory
change runs the gamut from the granular,
such as the new way companies must
account for leases, to the major structural
overhaul of the health and financial
systems—47 percent of US CEOs surveyed
say they are rethinking their corporate
strategies in response to regulation,
compared with 34 percent worldwide.

Asset and investment management CEOs
are no different. They see opportunities in
rationalizing operations and improving tax
and capital efficiency. Though consumers
are becoming more price-conscious, regulation
could increase expenses. To deal
with this challenge, almost 70 percent of
asset management CEOs surveyed have
initiated a cost-reduction initiative.

While major regulatory change is top of
mind for today’s business leaders, survey
results demonstrate that C-suite leadership
is planning to extend their focus beyond
dealing with constraints and preparing for
compliance. Focusing on greater transparency
and beefing up risk management are
other ways that asset management CEOs
are looking for opportunity in a highly regulated
environment. Transparency can renew
investors’ trust that there are appropriate
controls across the fund value chain. More
than 70 percent of asset management CEOs
plan to rebuild their companies’ reputations
in the coming year. Focusing more closely
on risk is another way these leaders will
earn greater investor confidence. Nearly
90 percent of asset management CEOs are
modifying their operating models to manage
risk more effectively.

7How do we tap into growing
customer and employee sentiment
about sustainability?

Customers, businesses, and governments
alike agree that sustainability is key to
economic growth and competitiveness.
As a result, companies are finding that
their environmental and corporate
responsibility practices are increasingly
under the microscope. The shift toward
social responsibility is driving change in
consumer spending patterns. Globally,
CEOs feel pushed to make eco-friendly
changes to their products and processes.

Almost half of the CEOs surveyed expect
consumers to factor environmental and
corporate responsibility practices into purchasing
decisions and say they will change
their strategy in the next three years to
capture customer and employee sentiment.
And, believing that the supply chain plays
a critical role in innovation, most CEOs
are looking to their suppliers to help them
generate new ideas for developing green
products, powering cities and factories,
moving people and freight, growing food,
and securing the natural resources so
essential to business.

Nearly three-quarters of CEOs told us they
will actively support government policies
that promote “good” growth, while half are
optimistic that collaborative government
and business efforts will mitigate global
risks such as climate change.

Survey results show that business leaders in
some industries overwhelmingly agree that
consumers will factor a company’s environmental
and corporate social responsibility
practices into their purchasing decisions.
These include banking, chemicals, engineering
and construction, investment
management, oil and gas, and utilities.
For the utilities industry, climate change
is particularly pertinent, as environmental
conditions can impact utilities’ infrastructure
and ultimately affect customer service.

Recognizing the importance climate
change can have on their customers,
60 percent of utilities CEOs cite climate
change as a risk that will impact their
companies’ growth over the next three
years, compared with just 27 percent of all
CEOs surveyed. More than half say they
have already factored climate-change risk
into their strategies, while a majority say
they plan to address climate change over
that same time frame in order to improve
competitive advantage and enhance social
wellbeing. (See Figure 8.)

Energy companies have been profoundly
affected by changing consumer-spending
patterns. In Germany, this shift is driving
companies like E.ON AG to market its
services to various consumer segments.
For example, in the European retail segment—
private households and small
businesses—the company recognizes that
consumers are equally as interested in
energy optimization as in energy consumption.
Management views this transition as
a challenge that will require it to adapt to
new patterns of consumer behavior and
embrace new technologies.

Organizations across sectors are beginning
to realize the importance of meeting the
public’s high expectations—not only
by changing their strategies today to
capture stakeholder sentiment, but also
by looking ahead for changes on the
horizon. As social awareness continues to
gather momentum, demand for sustainable
and eco-friendly products, processes,
and services can only escalate.

8How do we tell our
company’s story in a way that
helps stakeholders see the changes
we’re making in a new light?

Recognizing the vital role that transparency
plays in establishing trust with
stakeholders and achieving growth goals,
many organizations are going beyond
basic disclosure to make sure their stories
are heard. As a result, 64 percent of CEOs
surveyed agree that companies are becoming
more transparent in reporting their
financial results and tax obligations.

This is especially true in the insurance
industry, where almost 80 percent of
insurance CEOs say they are focusing on
rebuilding their corporate reputations,
with some taking additional steps in risk
management and transparency in an
effort to improve their public standings.
(See Figure 9.)

In the aftermath of the economic crisis,
the insurance industry faces the challenge
of delivering favorable and sustainable
returns. The underlying solution may lie in
ways of communicating performance and
prospects clearly, credibly, and consistently.
Many believe that their companies’ share
prices fail to reflect the strength of the
business—largely because most analysts
and investors find it difficult to navigate
through the complexities of the industry,
especially since there is little comparability
in the way results are being disclosed.

Our research confirms that analysts are
particularly keen to see more information
about risk, along with the level of cash being
generated within companies. While the
planned overhaul of International Financial
Reporting Standards for insurance contracts
will provide a chance for insurers to put disclosure
on a more coherent and comparable
footing, it may be several years before the
details are finalized. Until then, those insurers
that can clearly explain the link between
their strategies, the risk they have assumed,
and the cash that they expect to generate as
a result, may have a valuable opportunity to
increase their share prices.

Regardless of sector, the winners of
tomorrow will be those that can not only
develop a clear strategy for value creation
and market differentiation today, but also
clearly communicate how that strategy
differs from that of their competitors
and why, as a result, their organization
deserves to be valued differently. Other
industries that are planning to focus on
rebuilding corporate trust in the next year
include the banking, entertainment and
media, and metals industries.

Seizing opportunity

The new business climate is marked by
constant and unpredictable change that is
driving new business priorities. As the survey
results show, CEOs, whether through
talent strategies, markets, innovations, or
external collaborations, are on a journey
whose ultimate destination is value. Along
the way, they are overcoming obstacles
and discovering emerging opportunities.
Even more important, they are setting new
agendas designed to capture them. And
while these agendas will differ among
companies and industries, they all share a
common reality: In a post-crisis economy,
those who embrace change will achieve a
competitive advantage. Those who don’t
will be left behind.

A recovery of confidence

The results from our survey show that
CEOs are very confident about companies’
futures in the short term and long term:
48 percent see growth in the next 12
months and 51 percent anticipate it over
the next three years. These levels indicate
a return to confidence levels last seen
during the boom years of 2006 and 2007.
But this recovery of confidence isn’t evenly
split across all regions and countries.
So, who’s the most confident?

Across the board, CEOs from emerging
markets showed the highest levels of confidence.
Regionally, Africa tops the list, with
65 percent of CEOs from the region reporting
confidence for the next 12 months. This
is followed closely by the Middle East, Asia,
and Latin America. (See Figure 10.)

The single country with the highest degree
of confidence is India, where 88 percent
of CEOs feel very confident about their
future. With India’s quick recovery from the
recession and continued booming economy,
this should come as no surprise. India is
projected to be one of the fastest growing
economies in the world—according to
estimates, its GDP at market exchange rates
will reach 83 percent of that of the US by
2050.³ Indian CEOs also understand this potential for sizable growth. Like many
other emerging market countries, they are
not just tapping overseas markets but are
now focusing on leading their own growing
domestic markets.

On the flip side, Western European and
North American CEOs were the least
confident about growth over the next year.
Hit harder by the recession than emerging
markets, Western CEOs seem more cautious
but still optimistic about the future. And though emerging markets are thought to be
the hotspots for growth, Western markets
are not far behind. In fact, CEOs around the
world indicate that the United States is the
second most popular country for sourcing
(after China) and Germany is the fourth.
Though BRIC countries like Brazil, India,
and China are important sourcing hubs, the
United States and Germany are thought to
bring quality control, innovation, logistics,
and existing relationships, which are integral
factors in CEOs’ sourcing decisions.

1 For the PwC 14th Annual Global CEO Survey, 1,201 interviews with CEOs were conducted in 69 countries during the last quarter of
2010. All statistics presented in this article are from the CEO survey unless otherwise noted. Visit http://www.pwc.com/ceosurvey to
learn more about the report.

2 International Monetary Fund, World Economic Outlook, October 2010. Estimates for shares of the world economy made on
a purchasing power parity basis.